Overall, buyers remain in control

The Dubai Financial Market General Index (DFMGI) was essentially flat last week falling by only 0.66 or 0.04 per cent to close at 1,616.81. Volume rose slightly even with the shortened trading week while market breadth leaned towards the bullish side with 16 advancing and 13 declining issues.

Last week the DFMGI was able to move above the prior week’s high thereby giving a first signal that the prior three-week retracement may be coming to an end. Although it’s not too convincing yet given the DFMGI’s weak performance and a close below that high, the ascending trend channel remains in place. For regular readers of this column, please note the the lower trend channel line has been removed on the chart with the middle line mentioned last week now marking support of the channel.

Important support continues to be around 1,603.45, the low of the recent retracement. A move below that level will signal weakening of the uptrend and a potential trend reversal. The odds of a steeper decline from there would then increase. This would be indicated by the drop below the lower trend line, a continuation of the retracement into its fifth week, the longest decline during the 23-week uptrend, and give the index its largest percentage decline seen during that period. Each is an indication that the uptrend pattern is changing and sellers are starting to dominate the market. Support would then be around 1,559, followed by 1,539.

On the upside, strengthening is indicated on a daily close above last week’s high of 1,629.21. The DFMGI then targets the most recent swing high of 1,656.20. A move above that level signals a continuation of the uptrend with the next resistance zone from approximately 1,702.73 to 1,706.60.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) improved by 16.95 or 0.63 per cent last week to close at 2,691.34. A trend continuation signal was given as the ADX got above the prior trend high of 2,680.49, and closed above it. Higher volume should be seen on a move higher to confirm strength but due to the shortened trading week volume was a little lower than the prior week.

Resistance was hit at 2,707.67, right at the top trend line of a bearish ascending wedge that has been forming for the past several months. The wedge can be seen on the accompanying chart with a line across the lower and top portion of the uptrend. These lines will eventually converge if the pattern continues higher in its current form. This is a classic chart pattern which has a tendency to breakout to the downside. However, the ADI can still continue higher from here within the confines of this pattern. And, as with any chart pattern, it can evolve into a different patterns. That’s why a signal must be seen first before taking action on a breakout of any pattern.

After last week’s high the next higher resistance zone is from approximately 2,718.50 to 2,737. That zone is followed by 2,770 to 2,777. By hitting the 2,770 price level the ADI would have completed a measured move where the second rally or leg up, that followed the low in mid-January, equals the distance in price of the first rally.

Weekly support is at last week’s low of 2,665.64, followed closely by 2,654.66. At this point a daily close below the lower level would signal a bearish breakout of the wedge. For now though the bullish trend remains strong.

Bruce Powers, CMT, is a financial consultant, trader and educator based in Dubai, he can be reached at bruce@etf-portfolios.com